Expansion of UK Emissions Trading Scheme into the domestic maritime sector: final business and regulatory impact assessment 2026

Section 1: Background, aims and options

Background to policy issue

The UK ETS was established on 1 January 2021 by the UK ETS Authority (“the Authority”), formed by the Scottish, UK, and Welsh Governments, together with the Department of Agriculture, Environment and Rural Affairs (DAERA) in Northern Ireland. The scheme incentivises cost-effective decarbonisation by putting a price on greenhouse gas emissions.

In 2023, the Authority published a response to the ‘Developing the UK ETS’ consultation^[3], signalling a clear intention to include domestic maritime emissions within the scheme. The Scottish Government later published a BRIA covering key changes proposed in that response, which remains relevant for overarching impacts.^[4] This was followed by a 2024 consultation^[5] detailing how domestic maritime emissions would be included from 2026. An interim Authority Response^[6] (referred to as the ‘Interim Response’) was published in July 2025 and a main Authority Response^[7] (referred to as the ‘Authority Response’) published in November 2025.

The Authority Response was published alongside an Impact Assessment^[8] (IA) and a further consultation on future integration of emissions from international maritime voyages^[9]. In addition, the Scottish Government produced an Islands Community Impact Assessment^[10] (ICIA) for the proposals in the Authority Response.

This BRIA builds on the IA to assess the impact of these changes on Scottish businesses and should be read alongside the Interim Response, Authority Response, ICIA, and IA.

The key policy decisions covered in the Interim and Authority Responses are:

• Partial implementation from July 2026;
• Full implementation, with inclusion of offshore vessels, from January 2027 to align with the EU ETS;
• Coverage of CO2, methane, and nitrous oxide emissions from domestic maritime vessels from July 2026, with offshore vessels included from January 2027;
• Application to vessels of 5,000 gross tonnage (GT^[11]) and above;
• Definition of domestic voyages as journeys between UK ports or within the same port, plus emissions while at anchor or moored;
• Exemptions for:
  • ferries serving Scotland’s islands and peninsulas to safeguard access to essential goods, healthcare, education, and employment;
  • fish-catching and fish-processing ships, both to be reviewed in 2028; and
  • government activities such as military, customs, police, coastguard, emergency/medical and government research, as well as activities of the General Lighthouse Authorities, search and rescue, firefighting and the provision of humanitarian aid or assistance.
• Primary compliance responsibility of the registered vessel owner, with the option to delegate to the ISM Company through a legal agreement;
• Application of Monitoring, Reporting and Verification (MRV) obligations, based on UK MRV principles, to all in-scope emissions;
• Extension of the UK ETS regulatory framework, including emissions monitoring plans, reporting, and penalties, to maritime;
• Adjustment of the UK ETS cap to accommodate maritime emissions;
• Commitment to consider future inclusion of international voyages;
• Introduction of ‘double surrender’ for the 2026 and 2027 scheme years;
• Reduction of the surrender obligation to 50% for in-scope ships travelling between Northern Ireland and Great Britain

The policy positions outlined above will be implemented through a Statutory Instrument (SI) - the Greenhouse Gas Emissions Trading Scheme (Amendment) (Extension to Maritime Activities) Order 2026, laid in draft in the Scottish Parliament, UK Parliament and other devolved legislatures in January 2026.

Objectives

The changes to the UK ETS set out in the Interim and Authority Responses support Scotland’s decarbonisation objectives by extending carbon pricing to domestic maritime emissions. This intervention strengthens the UK ETS as a market-based mechanism by requiring operators to surrender a UK Allowance (UKA) for every tonne of CO2e emitted, creating a clear financial incentive to reduce emissions. Operators can respond by investing in cost-effective abatement measures such as technical and operational efficiency improvements (e.g., hull coatings, speed optimisation), adopting zero or near-zero GHG fuels (e.g., hydrogen, ammonia, biofuels), and using shore power where available.^[12]

As the UK ETS applies a single carbon price across all covered sectors, abatement occurs where it is most cost-effective, ensuring least-cost decarbonisation across the economy. Where abatement costs exceed the prevailing UKA price, operators purchase allowances, maintaining flexibility while preserving the integrity of the cap.

This approach mitigates carbon leakage risks and supports Scotland’s statutory climate targets. Scottish ETS sectors—including maritime—account for 16% of Scotland’s 2023 greenhouse gas emissions, therefore, extending the carbon price signal to this sector is critical for delivering net zero in a proportionate and economically efficient way.

This section summarises the policy changes covered in this BRIA, presenting the final decisions in line with the consultation structure:

• Start date of the Scheme - The partial implementation begins on 1 July 2026 with the first scheme year running until 31 December 2026 - every scheme year thereafter will run from 1 January to 31 December. Full implementation, including offshore vessels, will follow on 1 January 2027 to align with EU ETS.
• Scope - The scheme covers three greenhouse gases - carbon dioxide (CO2), methane, and nitrous oxide. From 1 July 2026, only domestic voyages, defined as journeys between UK ports or those that start and end at the same UK port, will be captured by the scheme. Emissions captured will also include those generated while vessels are at anchor or moored. The Authority will consider inclusion of international voyage emissions after further consultation.
• In recognition of differences in carbon pricing between routes, the Authority has applied a 50% surrender obligation on in-scope ships travelling between Northern Ireland and Great Britain to address potential imbalances with routes between the Republic of Ireland and Great Britain. This reduction in surrender obligation will only remain in place for as long as the price disparity remains, for example if, in future, international emissions will be included in the scheme, the reduction will be removed.
• Threshold for Inclusion - The scheme applies to vessels of 5,000 GT and above. This threshold will be reviewed in 2028 to consider whether it should be lowered in future phases.
• To reduce the compliance burden for ships undertaking a high number of repetitive voyages between the same UK ports, a simplified monitoring approach will apply to vessels completing over 300 voyages on a single route within a scheme year. This approach allows operators to report emissions on a cumulative or averaged basis, rather than recording detailed data for each individual voyage.
• Offshore Vessels - The inclusion of offshore vessels in the UK ETS has been delayed until January 2027 to align with the EU ETS expansion for offshore shipping. This alignment aims to avoid market distortion and ensure a level playing field for operators across the UK and EU. The Authority will provide detail on the treatment of offshore ships in legislation and guidance, but the approach will broadly align with EU ETS to reduce administrative complexity and maintain a level playing field. Guidance will include the list of ship types covered by the term “offshore ships” and further details on offshore facilities.
• Exemptions - Certain categories of vessels will be exempt from the UK ETS. In line with the approach used in the aviation sector of the scheme, exemptions will apply to government non-commercial activities, including military, coastguard, and research operations. A full list of exempt activities is set out in the SI. Additional exemptions will apply to ferry services serving Scotland’s islands and peninsular communities, as well as fish catching and processing vessels. Exemptions will be reviewed in 2028.
• Participating in the Scheme (Regulation & Compliance) - The registered vessel owner is primarily responsible for compliance, with option to delegate obligations to an ISM Company through a legal agreement. Compliance will be managed through the METS system and the UK ETS Registry. For the 2026 and 2027 scheme years, a “double-surrender” mechanism is permitted, with the surrender deadline extended to April 2028. This gives maritime operators new to the scheme extra time to familiarise themselves with UK ETS before needing to buy and surrender allowances. MRV obligations apply to all in-scope emissions, except for those exempted, and are based on UK MRV principles.
• Cap Adjustment - The UK ETS cap will be adjusted to reflect the inclusion of maritime emissions. A total of 9,323,546 allowances will be added to the cap, consistent with decarbonisation plans across the Authority Governments and the strategic trajectory towards net zero.^[13]
• Future Expansion - The Authority intends to bring emissions from international voyages within the scope of the UK ETS in the future. A consultation has been issued to explore options for implementation. It is proposed that these emissions will be included in the scheme from 2028, subject to the outcome of consultation and further analysis.